After a Great Recession that cost Ohio more private-sector jobs than any state except Michigan,
Gov. John Kasich and state lawmakers understandably want Ohio “open for business.”

But is a state really open for business when its local governments require some businesses to
file not one, not two, but between 30 and 40 W-2 tax forms for their employees? Or how about a
state with local governments collecting income taxes on as little as $5 earned? Or a state with
more than 15,000 pages of local ordinances defining hundreds of different local taxes?

And can a state really be open for business if it doesn’t even have a standard “net operating
loss carry-forward” provision, or enforce caps on local income taxes?

The answer to each of these questions, of course, is no.

And so, businesses have fled and our economy has languished as Ohio’s byzantine municipal
income-tax system continues to impose these and other hidden costs that have plagued development
and economic growth for decades. Even the nonpartisan Tax Foundation recently found that ours is “
the most complicated, absurd and punitive system of municipal taxation in the nation” — a system
that will tax you twice if you live in one municipality but work in another, compounding the
injustice with every paycheck.

The good news is that the General Assembly has acknowledged that this system is a problem.
Acknowledging the problem is always the first step to recovery, and the legislature has proposed
House Bill 5 in an effort to make our municipal taxes more uniform and straightforward.

The bad news is that House Bill 5, currently before the Senate Finance Committee, barely
scratches the surface of the systemic, deep-seated problems that cause and perpetuate the current
absurdity. As the Tax Foundation’s Scott Drenkard laments, House Bill 5 is “not making the amount
of uniformity necessary to really affect (Ohio’s) horrid tax system.”

A war of attrition has been fought between status quo-minded municipalities that fear that
reform will cost them tax revenue, and reformers who want to disassemble or at least simplify the
Rube Goldberg contraption we in Ohio call municipal taxation.

That fight is understandable. But if our state leaders are serious about getting Ohio open for
business, then the time for half-measures is over. Passing weak reform measures today almost
certainly will rule out stronger reforms tomorrow, and reform-minded legislators should resist the
siren song of any reform bill that fails to address the problems that need to be reformed. That
should go without saying, and yet that is precisely the sort of “major reform” offered in House
Bill 5.

When considering
real reform, Kasich and the General Assembly should remember that only around 10 states
levy any municipal income taxes. Of those, most have only a few cities that levy income taxes.
Ohio, on the other hand, boasts nearly 600 different municipalities assessing income taxes — second
only to Pennsylvania, which has a far simpler tax-filing method than Ohio.

Would eliminating Ohio’s municipal income taxes altogether be a bridge too far? Probably, at
least for now, which is why uniformity and streamlining are imperative.

The Buckeye Institute and the Tax Foundation have suggested the following steps that Ohio could
take to help re-open its doors for business: eliminate double taxation on pass-through entities;
cap municipal tax rates; set reasonable thresholds that prevent filings for ridiculously low tax
bills; implement uniform tax rules, forms and instructions across jurisdictions; set uniform rules
for calculating tax credits; provide a meaningful “net operating loss carry-forward” so that new or
struggling business can survive; and give a simple bright-line test for determining municipal
residency.

Many of these reforms might not be easy for many municipalities, but Ohioans and their
businesses cannot continue to labor under the burdens of the status quo. Making serious changes to
our arcane municipal tax system offers at least one way for lawmakers to help get Ohio open for
business again.

Greg R. Lawson is a Statehouse liaison and policy analyst for the Buckeye Institute for Public
Policy Solutions.